how communities can stimulate their economy by monetizing property tax credits

Monetizing Property taxes:

How a community can stimulate its own economy without taxes or long-term debt

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WHAT’S MISSING?

Money!Unused resources

Unemployed

Vacant Land

Idle Facilities

AND WHERE DO COMMUNITIES USUALLY LOOK FOR THAT MONEY?

How can a community create new money from

within?

External sources

Federal and State government

Outside investors

…and if outside sources are not forthcoming?

• Widely accepted

• Equivalent to ‘legal tender’

• Easily transferrable

• Trackable in accounting systems

ANY SUCH MONEY WOULD HAVE TO BE…

Create new ‘local’ money???

So how can a community create local ‘money’ that achieves those objectives?

By Monetizing Future Property

Taxes

Monetizing future property taxes?

How does that work?

- By paying willing suppliers with credits against future property taxes

AND

- By making those credits transferrable

Example: Monetizing property tax credits…

Suppose a city budgeted $5,000 for a river walk for next year.

Recognizing that contractors have surplus resources and idle labor this year, the city decides to make a deal….

The city puts out a bid for the project this year payable in “property tax credits” against next years property taxes


Why would a contractor accept “property tax credits” as payment for a project?

• it will immediately free up cash set aside for property taxes

• it will improve the balance sheet’s ‘current assets’

• there is no other “cash” work available


- Hires an idle employee using property tax credits to augment salary

- Buys materials from local firms who also must pay property taxes

And because the PTCs are transferable, PTCs can be used to buy needed goods and services from other willing parties


… and so a willing contractor accepts the bid to do a project for payment in PTCs.

1. Cash that was set aside to pay taxes can now be used for other things.

2. Favors others willing to accept PTCs• An employee exchanges $1000 in salary for PTCs• A local rental firm accepts $2000 in PTCs for equipment• A service station exchanges $500 in gas cards for PTCs

3. Remaining PTC’s remain ‘as credit’ against future taxes with the county assessors office


A. For sidewalk work, contractor accepts $5000 in PTCsB. Contractor buys $1000 in gas cards from local station,

and $4000 toward equipment rentalC. Local gas station uses $1000 in PTCs against rent.D. Rental agency uses $4000 in PTCs to augment salaryE. At end of year:

• Gas station landlord applies $1000 to property taxes• Rental agency staff applies their bonuses against

their property taxes

………..$5000+……..$1000+……..$4000+……..$1000+……..$4000

$15,000

From $5K in PTCs

The real stimulus is the additional economic activity generated

Why Property Tax Credits (or PTCs)?

- Since almost everyone pays taxes, they have near universal value

- They can immediately improve a balance sheet as a tangible asset

- They can be transferred to others as payment in kind for goods and services

Monetizing property tax credits

The real magic from PTCs comes from making these property tax credits easily transferrable between private parties.

This can be done as simple as using a web-based application for transfer credits, or accepting letters of transfer

$5K in PTCs can generate 2-5 times as much in new economic activity


Immediate advantages

For the contractor• Puts idle people and resources to work• Frees up cash set aside for taxes • Increases sales

For the city • Puts future dollars to work against current economic problems• Citizens get use of the project results a year earlier• No increase in taxes or costs• May actually generate new revenue if invested in tax-generated

projects


Why it works

A. Trading with assets is as common and as old as bartering itself

B. Since virtually everyone pays taxes (directly or indirectly), PTCs would have broad acceptance

C. No changes are required for city tax accounting systems as these already track debits and credits for tax payers (though procedures would be needed for handling PTCs)

D. No changes needed for private accounting systems as PTCs would be handled as other non-cash financial assets


How a city government would get started

A. Identify future funded projects that seem like good candidates. Best would be those that generate new tax revenue.

B. Discuss with suppliers: Would you accept PTC’s for the project if it was moved into current year? (If not, the project is performed in the scheduled year)

C. Discuss with subs: Would you accept PTCs from prime if it meant work for this year rather than next year.

D. Build and share list of suppliers and subs that will accept PTC’s.

E. Begin project funding

Economic Activity of a Community

Employed Citizens

Thriving Businesses

=

Money Motivation

Available Capital

Desire to Spend and Invest

In good times, PTCs are not necessary. Money would be plentiful and resources would be used to their fullest.

In summary…


Employed Citizens

Thriving Businesses

=

Money Motivation

Available Capital


Unemployed

Closed Businesses

In bad economic times, outside capital contracts result in economic distress.

In summary…


Employed Citizens

Thriving Businesses

=

Money Motivation

Available Capital


Local projectsPTCs

Using Property Tax Credits, local communities can create their own stimulus with less reliance on outsiders

In summary…

Re-employed Workers

Fewer Struggling Businesses

Economic Activity

Employed Citizens

Thriving Businesses

Rather than waiting and begging for money from the outside, PTCs allow a community to turn inward and do something positive about their struggling local economy.

Most importantly…

Unemployed

Closed Businesses

Re-employed Workers

Fewer Struggling Businesses

- Without new taxes- Without long-term debt- With virtually no risk

PTC$